PODCAST: Title III Crowdfunding Changes with Mark Roderick

Crowdfunding continues to grow in popularity. It is a way to democratize the world of real estate investing, which historically has only been open to super-wealthy Americans. Its growth and positive outcomes have led to several changes being made in the space. Mark Roderick, our guest today, joins us to unpack these developments and the positive influence that they will have on real estate investing. In this episode, Mark presents an overview of the current crowdfunding space.

Title III Crowdfunding Changes with Mark Roderick

Key Points From This Episode:

  • Learn more about Mark and his expertise as a crowdfunding attorney
  • An overview of the crowdfunding basics and the difference between Title II, III, and IV.
  • Find out about some of the excellent changes the SEC has made related to crowdfunding.
  • How broker-dealers with a wide product mix make real estate accessible to more people.
  • ‘Title’ refers to the different types of crowdfunding as per the JOBS Act of 2012.
  • Why the Title III changes will make it easier to syndicate, even if you’re not a broker-dealer.
  • An explanation of what a funding portal is and the simple steps to set one up.
  • Learn about some of the drawbacks of establishing a funding portal.
  • Some of the changes Mark expects will happen with Title III advertising.
  • Other changes that the SEC has made around crowdfunding.
  • How Mark gives back and where you can get hold of him.

SEC Provides Guidance On Advertising By Title III Issuers

sec guidance

The SEC just provided guidance for Title III issuers in the form of Compliance and Disclosure Interpretations. You can read the CD&I’s themselves here.

Before Filing

Before filing Form C (the disclosure document used in Title III) and being listed on a Funding Portal, a Title III issuer may not take any action that would “condition the public mind or arouse public interest in the issuer or in its securities.” That means:

  • No Demo Days
  • No email blasts or social media posts about the offering
  • No meetings with possible investors

After Filing

Once a Title III issuer has filed Form C and been listed on a Funding Portal, any advertising that includes the “terms of the offering” is subject to the “tombstone” limits of Rule 204. The “terms of the offering” include the amount of securities offered, the nature of the securities, the price of the securities, and the closing date of the offering period.

Advertising that does not include the “terms of the offering” is not subject to Rule 204. Theoretically, for example, an issuer could attend a Demo Day after filing its Form C, as long as it didn’t mention (1) how much money it’s trying to raise, (2) what kind of securities it’s offering, (3) the price of the securities, or (4) the closing date of its offering.

Three caveats:

  • Have you ever been to a Demo Day? It’s hard to imagine someone wouldn’t ask “How much money are you trying to raise?” or that the company representative wouldn’t answer. Theoretically possible, yes, but in practice highly unlikely.
  • Even the statements “We’re selling stock” or “We’re issuing debt” are “terms of the offering” and therefore cross the line.
  • There’s an interesting difference between the regulations themselves and the CD&Is. The regulations say “terms of the offering” means the items mentioned. The CD&Is, on the other hand, say “terms of the offering” include the items mentioned. Thus, if you take the CD&Is literally, maybe “terms of the offering” also include other things, like the start date of the offering.

Video

After filing, a Title III issuer can use video to advertise the “terms of the offering,” as long as the video otherwise complies with Rule 204.

Media Advertisements

After filing, if a Title III issuer is “directly or indirectly involved in the preparation” of a media article that mentions the “terms of the offering,” then the issuer is responsible if the article violates Rule 204.

EXAMPLE:  You attend a Demo Day, and the organizer announces how much money you’re trying to raise. You violated Rule 204.

EXAMPLE:  A reporter from your local paper calls. Eager for the free press, you tell her you’re raising $200,000 for a new microbrewery in town, which she repeats in her article. You violated Rule 204.

EXAMPLE:  A reporter from your local paper calls. Eager for the free press, but very savvy legally, you tell her about your plans for the microbrewery but carefully avoid telling her how much money you’re raising or any other “terms of the offering.” She goes to the Funding Portal and finds out herself, and reports that you’re raising $200,000. You violated Rule 204.

To be safe, you just can’t be involved, directly or indirectly, with anyone from the press who doesn’t understand Title III and promise, cross her heart and hope to die, not to disclose any “terms of the offering.”

Advertisements on the Funding Portal

Advertising a Title III offering outside the Funding Portal is a minefield. But inside the Funding Portal is a completely different story. Inside the Funding Portal is where everything is supposed to happen in Title III. Focus your attention there, where the minefields are few and far between.

Questions? Let me know.